Organizational Design of Adidas In this chapter, we have reviewed the Organizational Structure and Culture of Adidas. Though Adidas-Salomon is a company, which is in the business of manufacturing and marketing a wide range of products, the emphasis of our study is on the footwear business (core business) of Adidas. A Review on the Organizational Structure of Adidas The Head Quarter of Adidas-Salomon is situated in a small town named Herzogenaurach in Germany. This head office only manages the support function of Adidas such R&D, marketing sales etc. nd that too of the European, African and Asian regions only. The American region is monitored by Adidas America, which is an autonomous division and has been made to increase the market share of Adidas in USA. Adidas America has got its own support functions, which help it respond to the market needs as quickly as possible. In 1997, Adidas acquired “Salomon”, one of the world’s leaders in sporting goods. The acquisition broadened its product range through the addition of three leading sports brands. “Salomon” for winter sports equipment, “Taylor Made” for golf equipment and “Mavic” for cycle components.
The core brand of Adidas-Salomon is Adidas which is in the business of making athletic equipment, footwear and apparel. Adidas has gone through a lot of structural changes since 1924 i:e when two brothers Rudolf and Adi Dassler founded this shoe making company. In 1948, the two brothers split from each other and Rudolf founded a rival sporting company named “Puma”. Adidas started growing and to cut its prices short, it started manufacturing its products outside Germany. It moved to countries such as the Czech Republic, Hungry, Poland and Russia. As the company grew big, it was rent by family quarrels. As Adi’s son, Horst, plit with his parent and opened a rival branch in France, complete with its own designers and factories. Horst eventually took over the parents company in 1985. By then, Adidas’ share of the key American Market was crumbling. It had dwindled to just 2% from 70%. Adidas’ share was taken by Nike and Reebok. Horst died in 1985, leaving Adidas leaderless. His sister finally sold the company in 1989 to Bernard Tapie, a roguish French financer for $ 320 million. Tapie was soon declared bankrupt and Adidas fell into the hand of the creditors. Louis-Dreyfus, scion of a prominent French trading dynasty with an M.
B. A. from Harvard, earned a reputation as a doctor to sick companies after turning around London-based market research firm IMS. With no other company or entrepreneur willing to gamble on Adidas, Louis-Dreyfus got an incredible bargain from the banks: he and a group of friends from his days at IMS contributed just $10,000 each in cash and signed up for $100 million in loans for 15% of the company, with an option to buy the remainder at a fixed price 18 months later. One of Louis-Dreyfus’ first move was to replace nearly all of the senior managers, bringing in young people from all over the worked.
He flattened the organizational hierarchy and moved his own office into middle of the marketing group, working directly with the product managers. Then he doubled the marketing budget – which had been reduced year after year to control costs. Louis-Dreyfus moved production to low-wage factories in China, Indonesia and Thailand and sold Adidas’ eastern European factories for a token one Deutsche mark apiece. This shift of manufacturing was due to the reason that prices in eastern Europe had been rising for the some time. This hit the competitiveness of Adidas and sent it towards locations in Asia, North Africa and Southern Europe.
At this time, 90% of the shoes and apparel of Adidas in made Asia, Africa and southern Europe. Adidas is also having its products manufactured by sub-contractors in countries like Korea. This sort of contract manufacturing is handled by regional offices (in this case Hong Kong). These regional offices have a high degree of autonomy. There is no or little involvement from the head office in Germany. In the past, all of the manufacturing was monitored by the head office. Adidas also has offices all over the world which work as sales centers of its product in their respective countries.
Adidas soon wants to finish manufacturing all sorts of products. It wants its products to be manufactured by subcontractors. It only wants to take care of the marketing of its brand and products. In the past, Adidas had been following the traditional “footwear and apparel” structure which was being followed by most of the sports equipment companies. To cope with uncertain and competitive environment, most of the footwear and apparel companies shifted to flexible structures to deal with the environmental uncertainties. For example, Nike and Reebok shifted to a “Network Structure”.
A network organization is a collection of independent, mostly single-function firms. The dynamic network structure describes not one organization but the web of interrelationship between many firms. The network as whole can display the technical specialization of the functional structure, the market responsiveness of the product structure and the balance and flexibility of a matrix. [pic] In 2000, Adidas announced revolutionary new three divisional structure. This structure had never been followed by any other organization before.
In this structure, Adidas divided its products into three divisions. The divisions were named as “The Forever Sports Division”, “The Original Division” and “The Equipment Division”. The divisions are dealt as separate organizations as all the three divisions produce different product to cater the different segments of the society. The competitors of these divisions are also different. Furthermore, these divisions have a network structure within them. This new structure of Adidas is a very powerful tool to handle all sorts of uncertainties of the different markets.
Given below is a sketch of the new and revolutionary Three Divisional Structure of Adidas. [pic] [pic] In the figure, FSD stands for Forever Sports Division, OD stands for Original Division and ED stands for Equipment Division. A brief listing of the products and competitors of the three divisions is given below: Forever Sports Division The forever sports division spotlights “sports performance” products that Adidas aims at fashion oriented customers. Forever Sports offers products that compete with Nike, Reebok, Fila and Puma. Original Division Original Division focuses mainly on leisure products.
The division offers three product segments: Re-introduced, or limited volume remakes of the classical goods; Re-interpreted, or updated products based on Adidas’ “sport” version; and Re-designed, based on older Adidas styles, but as the company explains, “put in today’s fashion context. ” Adidas wants this division to compete with retailers such as Polo, Abercrombie & Fitch and GAP. Equipment Division The equipment division will be launched in winter 2002. This division will create multifunctional sports products. The distribution of these products will be in chosen markets like Germany, France and the US.
Adidas has undergone this structural change but one of its divisions has still not hit the markets. This new structure of Adidas will provide Adidas with the dynamic framework that it needs to aggressively expand its businesses and will enable it to deliver significant growth rates in the coming years. Organizational Culture of Adidas Before 1993, that is when Louis-Dreyfus joined as the CEO of Adidas, Adidas was a very formal and centralized company. All the top management was German and as Louis-Dreyfus recalls, “it was a very self centered German company which was absolutely sure that it was right. There was a lot of bureaucracy in the company which had built up over several generations. Louis-Dreyfus realized this fact on the very first day when he joined as the President of Adidas, when he was asked to approve a salesman expense account for $ 300. He soon realized that this was the company’s biggest enemy. Adidas more or less tried to follow the lines of its rival Nike. Nike has a strong sports-oriented culture and is promoted through company practices such as paying employees extra for biking to work instead of driving.
Nike is recognized worldwide as an athlete’s company which, hire former college, professional and Olympic athletes to design and market its shoes and clothing for sports enthusiasts. The company chooses to call its headquarters a “campus” instead of an office. Employees are called “players,” supervisors are “coaches” and meetings are “huddles. ” Nike has been striving towards an inner culture that reflects this mantra. Employees are given an hour and a half for lunch to play sports or simply workout. The new Nike is not just about shoes and slam-dunks, but about promoting a lifestyle.
All new employees view a video of sports highlights accompanied by a soundtrack that discusses the soul of the athlete and the competitive spirit. In addition, management sends weekly emails to update employees on the recent successes of Nike-sponsored athletes, and often hosts spokespeople to motivate and thank its staff for contributions to the sports world. Adopting a new culture is not an easy job. The primary steps taken by Louis-Dreyfus were, that as soon as he joined Adidas as its CEO, he replaced nearly all of the senior managers and brought in young managers.
He slashed the company’s bureaucracy, adopted American accounting rules and brought in international management talent. In a matter of weeks, the entire German senior management had been fired. The company’s chief financial officer was Australian and the international marketing manager was a Swede. English became the official language of the head office and no Germans remained on the managing board of the company other than himself and some other trusted aides. In another break with the traditional German workplace, corporate life was made almost gratingly informal.
Unlike other German managers, the managers of Adidas show up for work wearing sweatshirts and sneakers. A lot of freedom is now given to the employees working there. None of the decisions are interfered with and no complaints are made about any decision. The culture of Adidas does not only care for the internal environment but also the external environment. Its culture now emphasizes on socially responsible, safe and environmentally sustainable practices in the company and its supply chain to enhance the value of its brands.
Adidas emphasizes on the fact that athletes need a healthy planet, just as they need the best products, as it is hard to run when the air is poisoned. Globally, Adidas has made, or is in the process of making the following commitments towards reducing its impact on the environment: 1. Preparation of a Germany-based global technology centre dedicated to developing environmental friendly footwear manufacturing technologies. 2. ISO 14000 (a set of international standards which help make the world a better place to live) Certification. 3.
Cutting wastes and conserving resources. 4. Promoting a culture of responsible outdoor athleticism and an athletic, healthy lifestyle 5. Teaming up with other organizations and companies to help Adidas develop sustainable socially responsible business practices. The brand values of the company are authenticity, inspiration, honesty and commitment that are derived from sports. They form the basis of its Standards of Engagement, the company’s code of conduct that aims to ensure that its suppliers? factories are safe, fair places in which to work.
Adidas vows to adhere to social and environmental laws, directives and guidelines while continually improving upon its own contribution to a sustainable society. Adidas aims to communicate with all stakeholders in an atmosphere of mutual trust and respect. It provides them with appropriate information related to the social and environmental performance of the group on a regular basis. ———————– Nike Designers Producers Suppliers Distributors FSD Designers Producers Suppliers Distributors OD Designers Producers Suppliers Distributors ED Designers Producers Suppliers Distributors Adidas
